Understand the thin line between organic and inorganic growth

Investors look for progress when buying shares in a public company. They want to increase the company's market share, sales and revenue, profits, and share price.

Businesses employ both organic and inorganic strategies. Companies that report organic growth have increased their size, revenue, or market penetration by expanding and developing new businesses.

On the other hand, acquiring other businesses results in inorganic expansion. Most organisations look to develop utilising a combination of the two methodologies because organic growth requires resources invested in R&D, product marketing, brand awareness, etc.

However, they need more resources to expand their operations and establish or maintain market leadership. They can achieve the equivalent remotely through consolidations and acquisitions as part of inorganic development for business entity expansion.

Difference between organic and inorganic growth

What is organic growth?

Organic growth is when a company uses its resources to reach its growth potential and achieves natural growth. It is the expansion of a business through the reinvestment of previously earned profits.

Economist Jonathan Reuvid defines organic business growth as an increase in sales resulting from the company's evolution into an organism as reflected in its services and products.

Organic growth includes expansion with new products, new brands, and more branches. These strategies involve optimisation (organic growth in digital marketing), reallocation of resources, and new product offerings.

For these, marketers use internal funds to improve production and control costs.

Who uses an organic growth strategy?

Usually, small or new businesses use organic business growth for the initial stages of corporate development. It involves developing new products and attraction in the market. Large companies also use this strategy to consolidate their market position.

An illustration of organic business expansion is establishing a brand-new clothing location. The company reaps the benefits of the expanded market share and increased revenue from the new outlet by investing profits from the previous year in the project.

Over 50% of marketers admitted that keyword rankings and organic traffic are the top ways to measure the success of their SEO strategies. We at Growth Jockey create a perfect blend of great minds and robust technologies to create an optimised organic growth plan.

With us, you can achieve high ROI at a much faster rate.

How long does organic growth take?

An organic growth strategy takes time to drive growth and sales because it is driven internally. It also requires more labour and a dynamic strategy to start seeing results. However, organic growth help a business more sustainably in the long run.

By comparing revenues and share value, businesses compare results from year to year.

What is inorganic growth?

It is known as inorganic or acquisitional growth when a company uses external resources to increase market share or enter a new market. For example, businesses invest in acquisitions, mergers, joint ventures, etc.

Examples of inorganic growth include the acquisition of a rival to increase market share or a supplier to improve integration. These are ready-made businesses to artificially increase growth rather than relying on internal efforts like increasing sales and growing a customer base.

Although it is not a quick fix for an existing decline, inorganic business growth is typically the quicker option. A survey by PwC reveals that 40% of 1300 CEOs said they were planning on targeting a joint venture to boost revenues. 37% were considering a merger or acquisition.

Before considering these strategies, it is highly recommended that businesses are already stable.

Analysis: Organic development versus Inorganic Development

Let us consider Company A, and Company B. Organization A is developing at a pace of 7% and organisation B at a speed of 30%. If you look at face value, investments will splurge for company B because of a higher growth rate.

However, let us consider another scenario. Company B grew revenues by 30% because it acquired its competitor for some billion dollars. The reason for the acquisition was declining sales by 7-10%.

A significant risk is associated despite company B's expansion and higher ROI. However, company A is expanding by 7% without having to make an acquisition or take on more debt.

Which company is likely to get investment?

Company A organically increased its revenue by 7%. The growth is due to the demand for the company's current products and does not require a merger or acquisition (inorganic growth). However, Company B's revenue decreased by 5% due to less organic growth.

Acquisitions made with borrowed funds contributed to overall growth. Instead of relying on its business model, Company B's expansion is entirely dependent on acquisitions. Hence, even at a lower growth rate, company A becomes a better investment in terms of risk.

However, some investors may be willing to take on the additional risk, while others choose the safer investment. Further, since organic growth is a low-risk and sustainable marketing strategy, let us understand how we can achieve it.

Which growth strategy is better?

Organic growth

Pros

There are advantages and disadvantages to both growth strategies. Expanding your business per your vision is the most significant advantage of organic growth.

You'll be able to fully concentrate on achieving your objectives this way. As the company's management, you have more influence over the specifics of the organic growth process than you do with inorganic growth.

Additionally, organic growth does not have a merger and integration process, so you are less likely to have issues with goals and sustainability.

Cons

One of the inconveniences of natural development is continuous development. The company cannot proliferate through organic growth because it grows through its equity. The business may occasionally need help with this.

You should catch up in fields where competition is multiplying or lose market share because you're growing slowly. In addition, it is highly likely that, over time, more than existing resources will be required to achieve your objectives.

Inorganic growth

Pros

With a merger, many businesses nearly double or triple their client base. Further, companies may increase their share of the market immediately. Market share growth is one of the most significant advantages of a merger or acquisition.

The company's previous sales and relationships are significant contributors. Additionally, inorganic growth increases expertise and knowledge for more robust strategic decisions in pricing, purchasing, volume, and overall reach.

Growth Jockey can help you implement proper marketing and advertising strategies for successful business processing.

Cons

The initial cost of a merger or acquisition is typically significantly high. If your company needs more funds, taking on debt may make the merger or acquisition less appealing to investors. In case of poor integration, you could enter into huge debts.

Further, there can be issues with management systems and sales due to the merger's sudden expansion. With expert administration, a successful consolidation can prove to be effective.

After analysing organic vs inorganic growth, it is safe to say that organic growth has fewer risks and investment demands. However, inorganic growth strategies can sometimes lead to unexpected success.

How to boost organic growth?

Marketers utilise the Ansoff matrix to analyse the various strategic trajectories that a company might pursue. This matrix depicts potential application areas for core competencies and strategies.

The growth vector components of the Ansoff matrix have four primary aspects -

Market analysis

The goal of market penetration is to increase market share by using products already on the market. This may entail developing new core competencies or improving existing ones. The goal of such competency development might be to improve service or quality to boost the company's reputation and set it apart from competitors.

Similarly, competence development may centre on increasing productivity to cut costs below those of rivals. Markets that are older or in decline are harder to break into than those that are still growing.

The company may also consider withdrawing from a declining market to redistribute resources to more lucrative markets. When a business's current market appears to be saturated, it may consider alternative growth paths.

Market growth

Entry into new markets or new segments of existing markets using existing products is the foundation of market development. Utilising existing skills is likely the foundation for entering new markets, but developing new skills may also be necessary.

Developing new skills in new market segments may be necessary for expanding into existing ones. When entering international markets, a business will likely need to develop new skills to deal with linguistic, cultural, logistical, and other potential issues.

However, the primary danger of market development involves entering markets where the business may need more prior experience.

Product Creation

New products for existing markets are at the heart of product development. Like the previous strategies, the goal is also to gain more market share, keep existing customers, and acquire new ones.

Utilising existing skills and building new skills becomes necessary for product research. Further, product development gives a company the advantage of meeting customer needs with which it is familiar because they are already in the market.

Multiplication

Diversification is the potential for organic business growth by expanding into new markets and products. This is a great choice when markets are crowded or products are reaching the end of their lifespan.

Broadening the product and market portfolio can lower risks and increase the clientele base. Our Growth Jockey team comprises skilled marketing, engineering, sales, and operations professionals. The blend of our best minds and expertise helps companies diversify quickly.

Wrapping Up

In business, there is no permanent strategy for growth. Most organisations find blending organic and inorganic growth the ideal way to broaden their income base without depending too intensely on one method.

If you need assistance growing your business, Growth Jockey uses data from your company's growth analytics to craft a personalised holistic structure. You can achieve growth in digital marketing with our assistance. With us, companies accomplish faster growth and high ROI with little effort.

At Growth Jockey, we are committed to helping businesses achieve organic growth through tailor-made strategies that address the specific challenges they face across diverse industries. Regardless of the scale of your company, whether it's a small-scale enterprise or a large corporation, we can provide you with the expertise and insights needed to drive sustainable growth.

Take a proactive step towards unlocking new opportunities for your brand by reaching out to us today!